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Monday, 28 Jul 2008
Get Prepared For a Rough Ride Ahead of US Non-Farm Payrolls Week.
The USD had a solid trading session last week, as it appreciated versus all of its major currency rivals. The greenback saw substantial bullishness early in the week as Crude Oil prices continued to fall, and a string of hawkish testimony by US officials infused the growing dollar trend.
USD - Still Looking For Direction.
The USD had a solid trading session last week, as it appreciated versus all of its major currency rivals. The greenback saw substantial bullishness early in the week as Crude Oil prices continued to fall, and a string of hawkish testimony by US officials infused the growing dollar trend. Crude Oil could be labeled as the major reason for all market movement last week, as it continued into its second week of legitimate bearish trends as it dipped below $125/barrel. By Tuesday, following testimony in front of the Senate Banking Committee, by Treasury Secretary Paulson and FOMC Member Plosser, the dollar gained close to 250 points against the EUR, reaching a two-week high of 1.5627. Ultimately, the greenback range traded for the rest of week and closed last week's trading session at 1.5696 versus its European counterpart.
This week should be highly volatility for the greenback, as many crucial news events are expected to take place. On tap this week, Consumer Confidence, ADP NonFarm Employment Change, Crude Oil Inventories, GDP and Unemployment Claims will highlight the US news before Friday, when we can expect Non Farm Payrolls, the Unemployment Rate and ISM manufacturing figures. With a variety of forecasts expected for this week's news, Forex traders should also pay close attention to the movement of Crude Oil to dictate the pace of the greenback.
Investors should note that a fresh wave of IPO's are set to hit the US stock markets this week, which will likely drive the markets up. The correlation between the major stock markets and the dollar has grown over the last few weeks and could prove to be vital in mapping currency movement for the week.
Today, Federal Reserve Governor Frederic Mishkin is expected to speak in Washington D.C. This will be the sole event from the US for the day, and with little else surrounding it worldwide, expect the market to be calm today.
EUR - Will the European Fundamentals Force ECB to Cut Rates?
The Euro has experienced a big turn-around in the last 2 weeks, after reaching recording highs versus the USD and JPY. The Euro-Zone currency has lost ground since eclipsing record marks and has not been able to reverse trends since. The EUR lost close to 250 points against the USD and approximately 100 points versus the GBP before range trading for the rest of the week. As expected last week, news from the EZ contributed to even more bearish movement in the EUR as the previous week was highlighted by French Consumer Spending, German Ifo Business Expectations Index and Manufacturing PMI. These 2 nations, especially Germany, represent a benchmark for what is to come from the whole of the EZ economy.
This week, news from the European Economic Zone could surprise investors and reverse the current bearish move in the EUR. In a news week dominated by German economic data we will German Consumer Confidence, German Prelim CPI, German Retail Sales and German Unemployment Change. If forecasts stay in line with positive expectations it is hard to see how the Euro can't make up some ground, unless the Crude Oil continues to fall. France and Italy will also release some important material this week that could help solidify European economic news in general.
Today the EUR produced one event on the economic docket. The German Consumer Confidence had fallen this month and printed a lower than expected result of 2.1. In spite of this indicator investors will look toward the equity market and especially the price of Crude Oil since it happened to be the best indication to the direction of the European currency.
JPY - Carry Trades Are Still the Name Of The Game.
The Yen completed last week trading session with mixed results versus the major currencies. The Japanese currency when placed against the USD lost close to 100 points closing last weeks trading session at 107.87. The Yen versus the GBP lost about 110 points as the pair closed at 214.73. Last week, it was forecasted that several indicators including the Tokyo Core CPI, National Core CPI and CSPI would help move the JPY on its own; however a string of unchanged results left the JPY price movement in the hands of outside sources.
This week Japan will provide even more indicators to the economic calendar and will likely contribute to its currency volatility. The Retail Sales, Preliminary Industrial Production and Average Cash Earnings are all expected to see small losses, and along with bullish USD or EUR news could further reducing the much-needed points for the JPY.
Today, local Japanese data could contribute to JPY volatility as we expect Overall Household Spending, the Unemployment Rate and Retail Sales. Data is forecasted to be negative and will likely move the JPY in a bearish direction. Forex investors might consider going short against the JPY today.
Oil - Looking To Break 2 Month's Low.
Crude Oil is currently traded near a 7 weeks low, at $123.50 a barrel. The main reason for the continuation of the downtrend is most likely to be OPEC decision to increase its output by 200,000 barrels a day. The Organization of the Petroleum Exporting Countries which is in charge of over 40% of the world's oil supply has managed to halt the surging oil prices.
Another support for the slipping oil was the seemingly change in U.S foreign policy. U.S approach is now considered to be less aggressive towards Iran, looking to avoid a military conflict, and by so calming investors concerns from another violent episode in the Middle East.
As oil dropped for about $24 a barrel in two weeks, no signs for a solid change are noticeable, and Crude prices are widely expected to further descend.
Since the last bearish move, the pair has been consolidating around the 1.5700 level for quite a while now. The hourlies provide bearish signals, suggesting that the restoration of the bearish momentum is due. Going long appears to be preferable today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
There is a very distinct bullish channel forming on the daily chart, as the pair is now floating at the top barrier of it. However, the RSI on the one hour chart has peaked at the over-bought zone, and been dropping ever since, suggesting that a bearish move is impending. A bearish cross on the 4 hour chart's Slow Stochastic also supports that notion. Going short with tight stops seems to be a good strategy.
For the past few days the pair has been floating around 1.0350, with no apparent breach. Now however, new sings for a bearish move are given in the form of a bearish cross on the Slow Stochastic of both the daily and the 4 hour chart. Traders are advised to wait for the break and swing.
The Wild Card
The pair is in the midst of a very strong bullish move, as a "W" shape was formed on the 4 hour chart, suggesting that the bullish move has more steam in it. This might be a great opportunity for forex traders to join a very promising trend.
|13:30||USD||Non-Farm Employment Change||204K||180K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|